I started investing 3 months ago and have a -24% XIRR. What should I do with my fund allocations?

Ans: It is great to see you committed to wealth creation for 8-10 years. Your discipline of Rs. 55,000 SIP monthly is truly a strong step. Let us now assess your current mutual fund allocation and guide you with a 360-degree view.

Here’s a detailed analysis and guidance, following simple and professional insights.

Your Asset Allocation: A Strong Start
You have chosen six mutual funds across different categories. This creates diversification.

About 18% is in a small-cap fund. That is slightly aggressive for most investors.

Around 18% is also in a flexi-cap fund. That offers flexibility across market caps.

Bluechip and balanced funds make up 36% of the SIP. That gives some stability.

One fund is an index fund. This needs to be reviewed carefully, as explained below.

Your ELSS fund gives tax benefits and exposure to equity. Good for long term.

Overall, your portfolio covers most categories. But we must check risk balance now.

Review of Index Fund: A Hidden Weakness
Index funds simply copy a stock list like Nifty 50. They don’t aim to outperform.

They do not protect in down markets. No fund manager takes active decisions.

During volatility or crisis, index funds can fall sharply. No exit from risky stocks.

You may miss better opportunities in mid-cap or lesser-known quality companies.

With actively managed funds, you get research-backed decisions. You may beat the index.

Fund managers adjust based on market cycles. They reduce underperformers.

In your case, replacing the index fund with an actively managed large-cap or multi-cap fund is wiser.

ELSS: A Smart Addition with Lock-In Benefit
Your ELSS fund helps reduce tax under section 80C. That’s a smart step.

Lock-in period of 3 years improves discipline. But remember it reduces liquidity.

You already have enough liquidity through other funds. So this choice is balanced.

After 3 years, you may switch it gradually to other equity funds if needed.

Small Cap Fund: High Risk, High Reward
Small-cap funds can grow very fast. But they can fall deeply too.

18% exposure is fine if you understand and can handle big ups and downs.

Avoid adding more money into this category unless you review risk appetite.

You must stay invested here for minimum 7 to 10 years to see good gains.

If you get nervous during market dips, consider reducing this exposure slightly.

Balanced Advantage Fund: Acts as a Shock Absorber
This fund type moves between equity and debt as per market signals.

It adds stability to your portfolio. Useful during market corrections.

Keeping 10K here is a wise cushion. Continue this allocation.

If markets crash, this fund may fall less and recover faster.

Bluechip or Large Cap Fund: Steady But Less Exciting
Bluechip funds give exposure to top companies. These are market leaders.

They offer low risk and average returns. Better than FD, but less than small-caps.

Good for stability. But don’t expect very high growth from this category alone.

Staying invested long-term will help benefit from compounding here.

Flexi Cap Fund: Your Growth Engine
This fund can move money between large, mid and small caps freely.

Fund manager plays a big role in returns. Choose a consistently performing one.

You are allocating 10K monthly here. This is the core of your growth strategy.

Stick to this allocation for 8-10 years for strong compounding effect.

How to Improve Your Current Strategy
Remove index fund. Replace with actively managed large-cap or flexi-cap fund.

Review small-cap fund exposure. Reduce slightly if you are not comfortable with risk.

Increase ELSS amount only if you still have space in section 80C.

You may also consider adding a pure mid-cap fund if you reduce small-cap allocation.

Keep a check on fund performance every year. But avoid changing too often.

Invest through regular plans via MFDs with Certified Financial Planner support.

Regular plans come with personal guidance and timely portfolio reviews.

Direct plans save cost but lack human guidance. Errors go unnoticed for years.

A CFP-backed MFD will also help you switch funds when underperformance begins.

Future-Ready: Preparing for Your 8-10 Year Goal
You are young and investing right. Time is on your side. Stay invested.

Don’t react to short-term news or market crashes. These are temporary.

Review your investment once a year. Not every month. Avoid panic decisions.

If you get a bonus or windfall, invest lump sum in flexi-cap or balanced fund.

Create a goal plan. For example: House, retirement, or child’s education.

Allocate each fund to a goal. This brings clarity and emotional strength during downturns.

After 6 years, start thinking about how to reduce volatility in your portfolio.

Gradually shift some corpus to balanced funds or hybrid equity funds.

If you plan to withdraw in year 8 or 10, start reducing equity 2 years before.

Tax Planning Tips for Your Future
Long term gains above Rs. 1.25 lakh in equity funds are taxed at 12.5%.

Short term gains are taxed at 20%. So hold equity funds for at least 1 year.

Debt funds follow your income tax slab for all gains.

Keep track of how much profit you book every year. Spread redemptions wisely.

Use ELSS smartly to save tax every financial year. Do not over-invest.

What You Are Doing Right
SIP amount of Rs. 55,000 is excellent. Stay consistent.

You have covered different fund categories. This shows good understanding.

Your investment horizon of 8-10 years is ideal for equity funds.

You have included tax-saving and growth-focused funds both. Good balance.

You are seeking professional review early. This shows maturity and clarity.

What You Can Do Better
Exit index fund. Shift to actively managed funds.

Limit small-cap exposure. Too much may affect sleep during bad markets.

Add one more flexi-cap or a mid-cap fund for extra growth.

Review SIP mix every year with a Certified Financial Planner.

Document your goals. Map your SIPs to goals.

Never stop SIPs during market fall. That’s when they work best.

In the last 2 years before your goal, reduce equity exposure slowly.

Avoid real estate. It locks money and gives poor returns after tax and inflation.

Continue through regular plans under MFDs with CFP advice.

Finally
You are on the right track. You are saving regularly and thinking long term. That is great.

You only need small changes. Right adjustments can give better peace and better growth.

Mutual fund investing is not about timing. It is about staying invested smartly.

Keep learning. Keep investing. Your 8-10 year journey will be rewarding.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment